334

A financial crisis is undermining the Nigerian electricity supply industry (ESI) (see above), but just as important is the lack of natural gas to generate power, as potential suppliers have ducked calls for much-increased supply to the domestic industry while purchase prices remain low and cost-reflective tariffs are elusive. Lack of gas is compromising efforts to increase generated electricity output, shown in African Energy’s analysis of available data and forecasts based on research for the African Energy Database.

The MYTO 2015 tariff, agreed following consultation between distribution companies (discos) and the Nigerian Electricity Regulatory Commission (Nerc), proposes cost-reflective tariffs within a ten-year period. Based on a forecast by Transmission Company of Nigeria (TCN) and Nigerian Bulk Electricity Trading, this would encourage a substantial increase in available capacity, rising from 5,465MW in 2016 to 11,383MW in 2020, mainly from existing gas-fired plants. History – and analysis of the project pipeline – suggests that meeting these targets could be highly problematic.

The African Energy Database shows that installed capacity has increased from 7,147MW in 2005 to 13,072MW in 2016. However, further analysis of this data shows the availability of this capacity (that which is in working condition) has decreased from an average of 7,131MW in 2014 to 6,541.6MW in January-September 2016.

Total installed capacity is insufficient to meet the peak electricity demand of 17,400MW recorded by TCN in September, while electricity output lags behind. Only 3,521MWh/h was output of the 11,165MW installed capacity recorded in 2011 – and despite a rise in installed capacity, output has actually declined, to 3,054.6MWh/h on average in January-September 2016.

The average system capacity factor (electricity generated of the system’s theoretical maximum potential) was 23.4% in January-September 2016 – when some 503MWh/h was lost due to line constraints and a massive 2,984MWh/h was lost due to gas supply shortages. As a result, while 85% of installed capacity is gas-fired, only 72% of electricity generated comes from this fuel source, according to analysis of the African Energy Database.

Lack of gas to be supplied to generation companies (gencos) is a critical factor holding back the Nigerian ESI. Gas producers must meet a domestic supply obligation and gas prices have been increased to incentivise supply to the domestic market. But prices have yet to reach parity with exports; with producers preferring to export gas for hard cash – or continuing to reinject or flare – the industry remains vastly undersupplied with its dominant feedstock. Of the 7.8bcf/d of natural gas produced in 2015, only 1.04bcf/d was sold to the domestic market, of which 0.7bcf/d was delivered to power plants.

That figure has decreased to 0.5bcf/d in H1 2016, according to Nigerian National Petroleum Corporation (NNPC) data analysed by African Energy. This was largely due to an increase in vandalism of oil and gas infrastructure, with supply depending on a single pipeline running between Lagos and Escravos, which has left the sector vulnerable to so-called single point failures that can bring down the entire system (AE 333/24).

Some 43% of gas production was exported in 2015, while 28% was reinjected, and 9% flared, according to NNPC data. Major projects are under way to develop new nationwide gas infrastructure: the Trans-Nigerian Pipeline Project, Obiafu/Obrikom-Obon Node (OB3) and Escravos-Lagos Pipeline System II are expected to be commissioned in 2017. Meanwhile, resolving resurgent security issues in the Niger Delta will be key to improving gas supply and easing pressure on the sector.

The state-owned Niger Delta Power Holding Company – the owner of the ten National Integrated Power Projects (NIPPs), now headed by President Muhammadu Buhari’s appointee Joseph Chiedu Ugbo – has signed a World Bank partial risk guarantee for the supply of 130mcf/d from local gas producer Seven Energy to supply its Calabar power plant. Seven Energy is investing $500m in the development of a gas processing facility at the Uquo field in Akwa Ibom State, the government announced in early November.

These are positive signs, but significant progress is slowed by policy shortfalls, not least continued delays in introducing the Petroleum Industry Bill, which still shows no signs of passage through the National Assembly. Meanwhile, low oil and gas prices continue to deter investment in the upstream sector.

Some plans for new on-grid gas-fired power plants persist. Projects totalling almost 20.5GW are in the pipeline, according to the African Energy Database. These include the 450MW Azura-Edo plant, which is expected to be commissioned in 2018; the two remaining NIPP plants – 338MW Egbema and 225MW Omoku II units – are expected to be commissioned in 2017, even though their privatisation remains stalled as preferred bidders struggle to raise finance.

Geometric Power is expecting to reach financial close in Q1 2017 of the first 500MW phase of its gas-fired Oma Power plant, managing director Agatha Nnaji told Powering Africa (AE 315/1). Geometric and US partner General Electric on 14 October signed an engineering, procurement and construction contract with China Machinery Engineering Corporation for the multi-phased, greenfield project in Abia State. Speaking to African Energy, Geometric Power’s chairman and chief executive, Bart Nnaji, said “the commissioning of phase 1 is expected 30 months [after financial close]”. While Geometric has successfully built the 141MW integrated power project in Aba (although commissioning remains delayed following legal action over its right to distribute electricity), the current climate will prove far more challenging.

African Energy’s analysis concludes that no other on-grid gas-fired generation will come online before 2020. This means installed capacity will peak at just under 14.4GW, if a modest number of solar projects meet their tight July 2017 deadlines for construction to start, while available capacity may reach just under 11GW, although this is still an optimistic scenario.